2009 (1) TMI 58 - HC - Income Tax

Gift received genuineness of the gift - burden is on the assessee who has to prove the genuineness - assessee has failed to prove the genuineness of the gift capacity of the donor to make the gift the source from where the gift is made and the relation between the donor and the donee transaction was nothing but a subterfuge to avoid income-tax - no benefit can be derived by the assessee transaction is held as sham not geniuine

Summary

Issues:
Assessment of gifts as income under the Income-tax Act, 1961 for the assessment year 1999-2000.

Detailed Analysis:

Issue 1: Assessment of Gifts as Income
The case involved an appeal against the order of the Income-tax Appellate Tribunal, Chandigarh Bench, where two gifts of Rs. 49,000 each received by the assessee were deemed sham and added to his income for the assessment year 1999-2000. The assessee declared an income of Rs. 1,15,482, and the assessment was initially accepted but later questioned by the Assistant Director of Income-tax. The Income-tax Officer found the gifts to be unproven and treated Rs. 98,000 as income from undisclosed sources. The Commissioner of Income-tax (Appeals) affirmed this decision. The Income-tax Appellate Tribunal dismissed the appeal filed by the assessee, leading to the current appeal before the High Court.

Issue 2: Interpretation of Section 68 of the Income-tax Act
The court delved into the interpretation of Section 68 of the Income-tax Act, which deals with cash credits in an assessee's books. The section specifies that if the assessee fails to provide a satisfactory explanation for credited sums, they may be charged as income. The court emphasized that the burden of proof lies on the assessee to establish the nature and source of such credits. The court cited the case of Sumati Dayal v. CIT to highlight the burden of proof on the Department to show that a receipt is taxable income. If the explanation is unsatisfactory, the sum may be treated as income, as per Section 68.

Issue 3: Burden of Proof and Genuineness of Gifts
The court analyzed the genuineness of the gifts claimed by the assessee, emphasizing the need for the assessee to establish the identity and capacity of the donor, as well as the actual receipt of the gift. In this case, the donor's financial position and lack of evidence raised doubts about the legitimacy of the gifts. The court noted that a mere identification of the donor and transaction movement through banking channels was insufficient to prove the genuineness of the gifts. The court concluded that the claimed gifts were not genuine transactions but rather an attempt to avoid income tax.

Conclusion:
The High Court dismissed the appeal, upholding the decision to treat the gifts as income. The court imposed costs on the appellant for engaging in what was deemed a non-bona fide transaction to avoid paying income tax. The judgment emphasized the importance of discouraging deceitful practices to protect the integrity of the tax system and the country's development.